Why Scottsdale residents should care about City Code, Section 2-221

On Aug. 25, Councilwoman Kathy Littlefield and I made a motion that Scottsdale City Council put on a future agenda a discussion of placing limits on City Code, Section 2-221.

David Smith

David Smith

Council agreed, but for the average citizen this may have evoked nothing more than a quizzical stare!

In fact, this is a discussion worth following, because Section 2-221 provides important protections for citizens.

Section 2-221 is the provision in our City Code that establishes public auction as the most transparent process for disposing of city-owned real estate held in trust for our citizens. The auction process provides assurance that properties will be sold to the highest and best bidder and not be bargained away in a private transaction.

But, there are two important exceptions in Section 2-221:

Sub-section (b)(1) allows the council to exchange a city-owned property for another property desired by the city but owned by a third party. In an exchange, both properties are appraised and the difference in appraisals is either paid by or to the city.

This exemption was probably drafted with the thought that an exchange would sometimes be an efficient disposition process. An exchange can avoid the expense of a public auction for small, otherwise unsalable, real estate.

For example, one can imagine the city trading a small utility parcel on the west side of an owner’s lot for a similar parcel on the east side. Unfortunately, the City Code sets no limitations or provisions, leading to two problems in actual use:

  • First — There is no dollar “value” limit, meaning exchanges can be made for multimillion dollar properties, either of which could have generated an active auction market. And, there is no “order of magnitude” dollar limitation to require exchanged properties be reasonably comparable in value. If a $5 million city building can be traded for a $1 million building plus $4 million cash, the transaction looks more like a private sale than an exchange.
  • Second — In an exchange, the “sales value” that might have been realized from an auction of the city property is immediately “reinvested” to acquire the new property. However, reinvestment circumvents an important capital investment objective. Capital funds should be allocated to a list of projects prioritized according to their relative urgency. Through exchange, a newly acquired property jumps to the head of the list.

Sub-section (b)(5) is another exemption to avoid the public auction sale process. In this case it is permissible to sell city property to a person who owns adjoining property. Invoking this provision only requires a “… determination by the city manager that the public benefit will be served by uniting ownership.”

One can imagine how the disposal of small, unsalable land parcels without the expense of public auction might benefit the public interest. In reality, though, city properties worth many millions of dollars can be (and have been) sold to adjoining property owners in private, non-auction transactions.

How have such multimillion dollar private-party sales benefited the public?
City assets have been bought with tax dollars and belong to citizens. Their disposition should be above reproach.

Editor’s note: Mr. Smith is a member of Scottsdale City Council

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